Further to my point that if your valuation models use forward estimates rather than twelve-month trailing data, you’re doing it wrong, here are the results of our Quantitative Value backtest on the use of consensus Institutional Brokers’ Estimate System (I/B/E/S) earnings forecasts of EPS for the fiscal year (available 1982 through 2010) for individual stock selection:
Electron Capital Partners' flagship Electron Global Fund returned 5.1% in the first quarter of 2021, outperforming its benchmark, the MSCI World Utilities Index by 5.2%. Q1 2021 hedge fund letters, conferences and more According to a copy of the fund's first-quarter letter to investors, the average net exposure during the quarter was 43.0%. At the Read More
We analyze the compound annual growth rates of each price ratio over the 1964 to 2011 period for market capitalization–weighted decile portfolios.
The forward earnings estimate is the worst performed metric by a wide margin. The performance of the forward earnings estimate is uniformly poor, earning a compound annual growth rate of just 8.63 percent on average and underperforming the Standard & Poor’s (S&P) 500 by almost 1 percent per year. Investors are wise to shy away from analyst forward earnings estimates when making investment decisions.
We focus our analysis on historical valuation metrics in Quantitative Value and leave the forward earnings estimates to the promoters on Wall Street.